UK labour market: tight

Melanie Baker

16 October 2018

The continued picture of low unemployment and rising pay growth in today’s UK Labour Market Report looks consistent with further Bank of England (BoE) rate rises, Brexit permitting. Headline pay growth surprised on the upside and although headline employment fell, the numbers of full time employees rose at a robust pace.

The labour market data, and other survey data, remain consistent with there being little slack in the UK economy. The unemployment rate remained 4.0% and there were falls too in the numbers of part time employees who couldn’t find a full time job and temp employees who couldn’t find a permanent job. The number of full time employees increased 87k over the three months to August, despite a headline fall in employment.

Pay growth surprised on the upside. Private sector regular pay growth rose to 3.1% (3M/Y) after 2.9%. In the September minutes, the Monetary Policy Committee (MPC) had pointed out that indicators (pay settlements, surveys) looked consistent with some further rise in earnings growth.

However, the MPC only raised rates in August and, for now, Brexit risks remain a strong reason for caution on the UK outlook for the economy and markets. We still expect a sizeable gap before the next rate rise. Once Brexit uncertainty clears sufficiently, and assuming that there is a withdrawal deal, I’d expect rate rises to be back on the agenda by next May.

The continued picture of low unemployment and rising pay growth in today’s UK Labour Market Report looks consistent with further Bank of England (BoE) rate rises, Brexit permitting. Headline pay growth surprised on the upside and although headline employment fell, the numbers of full time employees rose at a robust pace.

The labour market data, and other survey data, remain consistent with there being little slack in the UK economy. The unemployment rate remained 4.0% and there were falls too in the numbers of part time employees who couldn’t find a full time job and temp employees who couldn’t find a permanent job. The number of full time employees increased 87k over the three months to August, despite a headline fall in employment.

Pay growth surprised on the upside. Private sector regular pay growth rose to 3.1% (3M/Y) after 2.9%. In the September minutes, the Monetary Policy Committee (MPC) had pointed out that indicators (pay settlements, surveys) looked consistent with some further rise in earnings growth.

However, the MPC only raised rates in August and, for now, Brexit risks remain a strong reason for caution on the UK outlook for the economy and markets. We still expect a sizeable gap before the next rate rise. Once Brexit uncertainty clears sufficiently, and assuming that there is a withdrawal deal, I’d expect rate rises to be back on the agenda by next May.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.